CapitaLand Buys $440 Mil Japan Portfolio Following Positive Q4

Just days after the release of encouraging financial results for the fourth quarter, the retail wing of Singapore’s largest property developer says it plans to spend JPY49.7 billion ($440.5 million) to add three office buildings and a shopping mall to its Japanese portfolio.

CapitaLand is making the acquisition of two office buildings in Yokohama, along with the Kokugikan Front office block and Seiyu & Sundrug mall in Tokyo through its CapitaLand Mall Asia subsidiary, according to an announcement by the company.

The deal will bring the company’s Japanese assets up to S$2.5 billion ($1.76 billion) and is expected to add S$25 million a year to CapitaLand’s net operating income, according to Jason Leow, coordinating chief executive for CapitaLand in Asia.

The news of this acquisition comes on the heels of CapitaLand’s Q4 report which showed that net profits jumped 73.8 percent year-on-year to S$430.5 million, an 11.7 percent rise on the full year to S$1.19 billion.

China and Singapore Remain Core Profit Centres

While CapitaLand is building Japanese portfolio, the group’s management is clear about the current focus of its $76.8 billion in assets. “Our core market has remained essentially Singapore and China. Each making up […] about 80 percent of our total asset allocation,” Ng Kee Choe, chairman of CaptiaLand, said at the Q4 report announcement.

With 63 percent of all malls owned by CapitaLand in China, the company maintains a heavy reliance on commercial property in the Middle Kingdom. Holding 56 malls on the mainland as of the end of 2016, and with 10 more on the way, most of CapitaLand’s shopping centers can be found in Tier 2 cities, which saw yield improvements of 7.8 percent, compared to yield growth of only 4.9 percent in Tier 1 cities.

Three Raffles City projects – set for Hangzhou, Changning and Shenzhen – will be completed this year and Chongqing Raffles City is on track for 2018, which would mean a record retail operating space for the group of one million square meters.

While China wins by surface area, with the group holding 72 million square feet of mainland space, or around 72 percent its total, those holdings account for only 54 percent of its assets by value; Singapore, on the other hand, accounts for only around 14 million square feet, but contributes about 40 percent of their total property value, according to company figures.

CapitaLand’s residential portfolio saw growth in both Singapore and China during 2016, with the company doubling its sales volume to 571 homes worth a combined. The company’s China operation helped contribute to record global sales of 12,789 homes last year by notching 10,738 units that brought in RMB 18 billion RMB, an increase of RMB 2.7 billion over 2015.

Singapore Inc Continues to Bet on Vietnam

While the bulk of the company’s cashflow continues to come from China and Singapore, CapitaLand’s management has also drawn a circle around Vietnam as a growth market this year.

“We will continue to grow […] our business in Vietnam. We acquired some sites and then we’re also looking at our first commercial project, a Grade A office building,” the group’s chairman, Ng Kee Choe, said in presenting the CapitaLand’s fourth quarter results.

The developer’s major Vietnam milestone in recent months was the launch of a serviced apartment complex in Ho Chi Minh City, under its Somerset brand.

“This is CapitaLand’s third acquisition in Vietnam since 2015, a testament of our confidence in Vietnam’s positive economic outlook,” Chen Lian Pang, CEO of CapitaLand Vietnam, said when the company acquired the project in September for $51.9 million. After launching sales at the project in central Saigon’s District One in October, CapitaLand has reportedly already sold 30 percent of the 40 units that it made available.

In addition to the residential project, construction will begin on CapitaLand’s first office tower in Vietnam in the current quarter. The commercial project, which is also planned for HCMC’s District 1 is slated for completion in 2020.